AT&T and Verizon's reduced churn and stable mobile customer gross adds in the second quarter likely doesn't bode well for its smaller two rivals, which report next week, because it suggests there have been fewer postpaid mobile subscribers left for Sprint and T-Mobile to poach.
Bernstein Research analysts believe that both Sprint Corp. (NYSE: S) and T-Mobile US Inc. will report reduced net postpaid phone additions when they reveal their second quarter earnings next week. Instead, they will bolster their financials with tablet sales and prepaid customer additions. And, notes analyst Paul de Sa, shifting from device subsidies to installation payments and new pricing plans will boost their numbers as well. (See Sprint Plans More Bundled-Content Offers, Sprint Launches No-Sharing 'Framily' Plans and T-Mobile Sacrifices Costs for Customers.)
What this shows, writes de Sa in a research note, is that these two US carriers are really now mostly competing with each other, and less so with AT&T Inc. (NYSE: T) and Verizon Wireless . If that's the case, it's going to make winning approval for their merger less likely than ever. (See DT Asks for $1B Prenup for Sprint, T-Mobile — WSJ and Is SoftBank Ready to Reunite With Legere?)
AT&T and Verizon reported relatively flat postpaid smartphone additions of 707,000 and 304,000 respectively, in this latest quarter. Churn was also low -- just 0.84% at Verizon and 0.86% at AT&T, it's lowest churn ever. (See AT&T: Capex Freeze? What Capex Freeze?, Verizon Continues 4G LTE Capacity Spend in Q2 , Verizon Loses Its Postpaid Net Add Crown, and AT&T Adds 625K Postpaid Subs in Q1.)
These numbers are bad news for Sprint and T-Mobile, which has been goading AT&T and bragging about stealing its customers. Bernstein's de Sa suggests that Sprint will lose the most customers in the second quarter, including price sensitive ones that will flee to T-Mobile. (See T-Mobile Sacrifices Costs for Customers.)
Jefferies & Company Inc. analysts took it even further, noting this week that they expect Sprint to report 879,000 handset subscriber losses for the quarter, making it one of the worst in Sprint's history. (See Sprint Feels the Churn Burn Before Spark.)
The bright spot in all this for Sprint, as well as T-Mobile, will be in prepaid subscribers and tablets. Even though neither includes tablets in shared data plans (which AT&T and Verizon do), T-Mobile has been pricing them aggressively. In addition, de Sa says that AT&T's gap between killing its low-end prepaid brand Aio and scaling up Cricket was good for Sprint and T-Mobile, which captured some of its customers that left in the hiatus. (See Tablets Grow Like 'OMG' in Q1, T-Mobile Drops LTE iPad Prices to WiFi Levels, and AT&T Plans a Prepaid Cricket Attack.)
"T-Mobile's MetroPCS brand will likely be the primary beneficiary, having expanded into Cricket geographies, although these gains are unlikely to continue much past the next quarter as AT&T begins to aggressively expand its prepaid presence," de Sa writes. "Sprint may also face continuing prepaid losses due to Lifeline audits removing (low ARPU) connections from its Assurance brand."
Sprint reports its second-quarter earnings on Wednesday, July 30, and T-Mobile reports on Thursday, July 31. Check Light Reading for all the details then.
— Sarah Reedy, Senior Editor, Light Reading